Mr Benjamin Chain (instructed by Ho, Tse, Wai & Partners) for the
Plaintiff/Appellant
Mr Colin Wright and Mr George Hui (instructed by H H Lau & Co) for the
Defendant/Respondent Carriers
STRAIGHT BILLS OF LADING: MISDELIVERY OF GOODS: PRESENTATION RULE: CONVERSION:
EXEMPTION OF CARRIERS’ LIABILITY FOR MISDELIVERY: MEANING OF
"DISCHARGE" AND "DELIVERY": AMBIGUITYSummary
The Hong Kong Court of Appeal upheld the judgment at first instance to the
effect that the presentation rule (that goods must be released to the consignee
only against presentation of an original bill of lading) applied to straight
bills of lading as well as to ‘order’ bills. However, the Appeal Court,
overruled the first instance judgment in holding that the carriers were not
relieved from their liability for misdelivery by an exemption clause in the bill
of lading. The Court held that the clause was ambiguous and that the ambiguity
had accordingly to be resolved in favour of the cargo claimants

DMC Category Rating: Developed

The Editor has compiled this case note in conjunction with Crump
& Co, the International Contributors to the website for Hong Kong

Background
This decision involved two separate actions brought by Carewins, a Hong Kong
exporter, against different carriers claiming for misdelivery of goods shipped
from Hong Kong to Los Angeles. As the facts in both cases were similar, the
cases were heard together.

In each case, Carewins sold items of footwear to its customer,
Artist Fashion, and arranged for shipment from the factory in China to Hong Kong
and then from Hong Kong to Los Angeles. The carriers on the Hong Kong/Los
Angeles leg of the journey issued "straight" bills of lading, naming
Artist Fashion as the consignee. The shipments were made in March/April 2003. On
arrival at Los Angeles, the containers were to be delivered to Artist Fashion's
warehouse by Trans-Union Group ("TUG") acting (as the Court of Appeal
found) as agent for Artist Fashion. The warehouse was about an hour’s drive
from the port.

However, 23 of the containers in question were delivered to the
consignee’s warehouse without Artist Fashion having first presented an
original bill of lading. The containers were then seized by US officials acting
under a court order in US proceedings brought against Artist Fashion by Burberry
Ltd alleging trademark infringements.

The dispute with Burberry was settled, but the terms did not
include the return of the seized footwear. As a result, Artist Fashion did not
pay Carewins for the goods. The fate of the 23 containers was unknown, but it
was likely they had been sold by the port authorities at public auction.

The attestation clause in the bills of lading stated "in
Witness Whereof, the carrier by its agents have signed three (3) original Bills
of Lading all of this tenor and date, one of which being accomplished and the
others to stand void". It did not, however, include the usual following
sentence "One of the Bills of Lading must be surrendered duly endorsed
in exchange for the goods or deliveryorder".

Clause 2(a) provided that the US Carriage by Goods by Sea Act
applied to the liability of the carriers "in respect of the Goodsduring
the period commencing with their being loaded onto any sea going vessel and
continuing up to and during discharge from that vessel". Clause 2(b)
provided that, subject to clause 2(a) "the [carriers] shall be under no
liability in any capacity whatsoever for loss or misdelivery of or damage to the
Goods however caused whether through negligence of the Carrier, his servants or
agents or subcontractos …". Clause 3 provided that, where US COGSA
applied, liability would be limited to US$500 per package unless the value and
nature of the goods had been declared in writing.

Carewins issued proceedings against the carriers because they
had delivered the goods without requiring original bills of lading to be
presented. The carriers, however, argued that they had duly delivered the goods
to the named consignee. The bills of lading omitted any express requirement for
presentation and the so-called "presentation rule" should not be
implied into straight bills of lading because straight bills (as opposed to
"to order" bills) are not by their nature transferable to anyone other
than the named consignee.

At first instance, that argument failed, the court following the
rulings of the Court of Appeal in Singapore in Voss v APL Co PTE Ltd [2002]
2 Lloyd's Rep 707 and of the House of Lords in the later case of MacWilliam
Co Inc v The Mediterranean Shipping Co SA (The "Rafaela S") [2005]
1 Lloyd's Rep 347. In both these cases, the respective courts had held that a
straight bill, though not transferable in the same way as a bill of lading made
"to order", was nevertheless a bill of lading, and its production was
a prerequisite to delivery, even in cases where there was no express provision
to that effect in the bill of lading.

However, the first instance court went on to relieve the
carriers from responsibility for the misdelivery, on the basis that the
exemption in clause 2(b) of the bills of lading applied. The judge found that
the misdelivery had taken place after discharge was complete and the Hague Rules
regime had accordingly come to an end. In those circumstances, the wording of
clause 2(b) – which referred to misdelivery ‘however caused’ - was wide
enough to exempt the carriers from liability.

Cargo interests appealed.

Judgment
The leading judgment was given by Reyes J.

The Court held that the case gave rise to two main issues of
dispute, as follows:
1. Did the defendant carriers breach their contractual obligations to Carewins
by delivering the relevant goods to Artist Fashion without production of the
bills of lading?
2.. Can the defendants rely on clause 2 of the bills of lading to exclude their
liability to Carewins arising from the misdelivery of goods to Artist Fashion?

Issue 1
The Court examined at length the decision of the House of Lords the Rafaela S
case and drew the following conclusions from it, with which it agreed.
"(1) From at least 1873 (if not earlier) mercantile practice treated
straight bills as bills of lading having the characteristic of documents of
title.
(2) In the 1920s, the drafters of the Hague Rules must have been aware of this
practice and would have intended the expression "bill of lading or any
similar document of title" in Art.I(b) to reflect such established
commercial usage.
(3) It follows that the expression "bill of lading or any similar document
of title" in Art.I(b) includes straight bills of lading.

The court went on to say:
"Once it is accepted that a straight bill is a bill of lading, it must be
that a straight bill is a document of title in the same way that an order bill
is a document of title. It must also follow that, as a document of title, a
straight bill has be produced before the named consignee can obtain delivery of
the goods. This is because, just as with an order bill, a straight bill is a key
to the goods or, as it is sometimes described, the key to the warehouse. To
obtain the goods, one has first to produce the key. This function of serving as
a document of title or "key" distinguishes a straight bill at common
law from a sea waybill."

Similarly, the court followed the House of Lords in holding that
in this case too, the wording of the attestation clause clearly indicated that
the bill of lading was a document of title which needed to be produced to obtain
the underlying goods. The clause was not to be ignored as being meaningless or
inapposite in the case of a straight bill.

The court then went on to overrule the decision in the Hong Kong
High Court in The Brij [reference] where Mr Justice Waung had held that
"under a straight bill of lading a carrier is entitled and bound to deliver
the goods to the originally named consignee without production of the
bill."

Accordingly, the appeal on this point failed.

Issue 2
After setting out at length the relevant provisions of the bill of lading, the
court noted the general principle that:
"(a)ny limitation or exclusion clause must, of course, comply with the
common law requirement of clarity. It must be clear and unambiguous what
liability is to be limited or excluded by a clause. If not, any ambiguity in a
clause will be construed against the party seeking to rely on the alleged
limitation or exclusion."

In its analysis of clause 2 in particular, the court found at
least two ambiguities which had to be resolved against the respondent carriers.
The first related to the inclusion of the words "whether or not through
negligence" after the words "however caused". Whereas the latter
words might have been sufficiently clear to exempt any misdelivery whatsoever
from liability, the introduction of the words "whether or not through
negligence" had the effect of limiting the exclusion to "misdelivery
however caused through negligence or misdelivery however caused not through
negligence." Misdelivery, the court pointed out, can be committed in ways
which do not involve any consideration of negligence, such as, as here, the
deliberate or intentional misdelivery of goods to a party despite the
non-production of a bill of lading. In the court’s view, such words lacked the
crystal clarity necessary to exclude liability for an intentional disregard of
an actual term of the contract of carriage [namely, the requirement to be
inferred from the wording of the attestation clause that a bill of lading was to
be produced in order to obtain delivery].

The second related to the correlation of clause 2 and the front
of the bill of lading. The bill provided that the port of discharge, the Place
of Delivery and the Final Destination were all described in the same way as
"Los Angeles, CA". The court found the reference to Los Angeles
ambiguous; it could mean the port area of the city or the entirety of Los
Angeles as a port city. In the latter case, the place of delivery would be the
same as the place of discharge.

The evidence showed that the cargo was "fully discharged
before clearance by US Customs, at which point TUG… appeared and took
possession of the goods –from a port area terminal - without production of a
bill of lading." If these were the facts, they corroborated, in the view of
the court, a reading of clause 2 in which – the port of discharge and the
place of delivery being in fact the same – the parties contractually regarded
"discharge" and "delivery" as equivalent operations. On this
basis, delivery would have taken place in the Hague Rules period of clause 2(a)
and there was no room left for the exculpatory provisions of clause 2(b).

In conclusion, the court held that "at its lowest, there is
an ambiguity as to which reading is the correct one and clause 2 must
accordingly be construed against the defendant carriers who are seeking to rely
on the provision to exclude liability." Judgment was accordingly given in
favour of the cargo claimants.

Comment
Whilst it is understandable that the Appeal Court did not wish to exonerate
the carriers from the consequences of an assumed deliberate decision to deliver
cargo without production of the relevant bills of lading, the grounds on which
it held the exculpatory clause in the bill of lading to be ambiguous and
therefore unenforceable seem highly tenuous. In the practice of the trade, it
makes little sense to equate the operation of discharge with that of delivery.
The first takes place when the cargo is landed from the ship; the second takes
place when the cargo is handed over at the container yard to the representatives
of the consignee. The terms of carriage in this case were "CY (Container
Yard)/CY".

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